Deryck Maughan, a vice chairman and co-head of investment banking at Salomon Brothers, learns that his superiors have been less than candid about their knowledge of bidding improprieties by the firm's government trading desk. He must decide what, if anything, he should do.
The owner and manager of the Texas Longhorn Cafe of Mississauga, Ontario, was trying to decide how to deal with an irate customer. Earlier that day she had made an elaborate birthday cake and delivered it to the restaurant in preparation for the party to celebrate her husband's 40th birthday. Inadvertently, the restaurant staff had already served it to another group. Now the customer was loudly berating the restaurant. The case is intended for a relatively short discussion concerning recovery from service failures.
During the last decade, U.S. manufacturers have narrowed if not eliminated the competitive gap between themselves and such foreign rivals as the Japanese and the Germans. But how can they take the lead and retain it? What will it take to stay ahead? To answer those daunting questions, an ad hoc group of 27 academics and industry executives formed the Manufacturing Vision Group in 1988. They studies development projects at Chaparral Steel, Digital Equipment, Eastman Kodak, Ford Motor, and Hewlett-Packard. Development projects are microcosms of an organization. And when designed and managed well, they generate powerful, distinctive capabilities as well as winning products or processes. The most successful projects combine seven key elements, which, when applied comprehensively, optimize development, foster learning, and initiate change throughout an organization. Those elements are: core capabilities, guiding visions, organization and leadership, ownership and commitment, "pushing the envelope," prototypes, and integration.
To be a leader in global manufacturing in the 1990s, a company must excel in two seemingly contradictory ways. First, it must constantly build and refresh its individual areas of expertise so that it has the critical capabilities needed to stay ahead. And second, it must get its ever-changing mix of disciplines to work together in an ever-changing competitive environment. Most manufacturers, especially those companies that have reorganized themselves by cross-functional processes, have already discovered how difficult it is to integrate various disciplines and still maintain functional excellence. But development projects offer a solution. Development projects are the critical juncture where functional groups meet and are therefore the true test of an organization's integrative abilities. More important, they can be used as a tool for strengthening the relationship among functions, while still giving those functions the room they need to advance their own expertise. The Kodak FunSaver project illustrates how a company can encourage functions to work together effectively, enhance functional expertise, and create a winning product to boot.
Leadership is the key to developing great products--products that surprise and delight customers. To achieve that goal, all the technical elements of a product must work well together as a system. The manufacturing process must produce everything that the design requires and the product must be delivered to customers in an outstanding fashion. And if the development of a great product is not an isolated case--if one great product is followed by another and another--the result is a great enterprise. Leadership is the key to achieving that kind of consistency. Eastman Kodak's FunSaver camera and Hewlett-Packard's DeskJet printer are examples of development efforts that created great products. Each became the basis for a whole family of products that has created a significant business for its company. The Manufacturing Vision Group studies successful projects that had powerful guiding visions for business strategy, project, and product. Moreover, these three visions were mutually reinforcing, energizing the people on the teams, focusing attention and effort on the right things, and getting them done in the right way.
Do well-regarded representatives of the business world often check their toughness at the door of the nonprofit boardroom? A number of widely publicized cases suggest that the answer is yes, and many business executives agree. What is the explanation? In this adaptation from his most recent book, William Bowen, president of the Andrew W. Mellon Foundation and the former president of Princeton University, argues that nonprofit boards have much to learn from the business world. But a combination of inappropriate motivations and unfamiliar and uncomfortable situations can prevent business people from contributing effectively in a nonprofit setting. People from the for-profit world often join a nonprofit board to take a vacation from the bottom line and to shed their "barbarian" image. They may therefore be less disciplined than nonprofit organizations need them to be. The management and staff of nonprofit organizations can help facilitate more effective participation by business executives, but business people themselves must make a considerable effort to contribute their skills, discipline, and know-how in this unfamiliar realm.
The next wave of economic growth is going to come from knowledge-based businesses. What will those businesses and their products look like? A tire that notifies the driver of its air pressure and a garment that heats or cools in response to temperature changes are early versions of knowledge-based, or "smart," products already on the market. They are smart because they filter and interpret information to enable the user to act more effectively. The development of knowledge-based business reflects an even larger transformation occurring in our society. Education is no longer focused on the student years but is considered a lifelong pursuit. In knowledge economies, the rapid pace of technological change means that learning must be constant and that education must be updated throughout one's working life. Business, more than government, is instituting the changes that are required for the emerging knowledge-based economy. And over the next few decades, the private sector will come to eclipse the public sector as our predominant educational institution.
In his thirty-first article for HBR, Peter F. Drucker argues that what underlies the current malaise of so many large and successful organizations worldwide is that their theory of the business no longer works. The story is a familiar one: a company that was a superstar only yesterday finds itself stagnating and frustrated, in trouble and, often, in a seemingly unmanageable crisis. The root cause of nearly every one of these crises is not that things are being done poorly. It is not even that the wrong things are being done. Indeed, in most cases, the right things are being done--but fruitlessly. What accounts for this apparent paradox? The assumptions on which the organization has been built and is being run no longer fit reality. These are the assumptions that shape any organization's behavior, dictate its decisions about what to do and what not to do, and define what an organization considers meaningful results. These assumptions are what Drucker calls a company's theory of the business.
The mission of industrial design has traditionally been to support engineering and marketing by improving the look and feel of a product. But a handful of pioneering companies--such as Thomson Consumer Electronics, Apple Computer, and Northern Telecom--are extending the parameters of design, pushing to the forefront something that has been an afterthought at most companies: a product's usability. User-centered design goes beyond ergonomics to encompass the cognitive aspects of using a product, or how logical and natural a product is to use, as well as the emotional aspects, or how people feel about using it. Thomson, for example, has declared that all its entertainment products must be engaging, foster a sense of discovery, and eliminate fear. And Northern Telecom has defined usability as simplicity, ease of use, and conspicuous customer value. Photographs of Thomson's System Link universal remote, Apple's PowerBook computer, and Northern Telecom's Vista modular phone illustrate how the new definition of usability can be incorporated into products.
In this fictional case study, Caroline Portal knows that La Shampoo is in trouble. Introduced in 1975 and targeted at women between the ages of 15 and 30, La Shampoo has a stylish image that had immediately become popular. Its slogan, "La Shampoo: For the Look and Feel of France," had remained the same since day one. In 1989, however, the line had begun a slow descent, but the company hadn't really addressed the problem until two years ago, when it named Caroline brand manager. At first, Caroline requested a new packaging design. The ad agency backed her up and called for a modest "new look" campaign. But the repackaging caused tension in the office and had no positive effect on sales: the numbers continued their slow decline. Caroline calls a meeting to examine proposals submitted by product sales manager Eric Woolf and a representative of the ad agency that held the La Shampoo account, Beth Hanson. Eric recommends a price cut, while Beth wants a relaunch. The tension grows in the meeting as Caroline weighs the options. A decision has to be made soon in order to save the brand. Which marketing plan should Caroline choose? Five experts examine the challenges of rebuilding a brand.
In the last 10 years, products have proliferated in every category of consumer goods and services, and the deluge shows few signs of letting up. Most companies are pursuing product expansion strategies--in particular, line extensions--full steam ahead. But more and more evidence is indicating the pitfalls of such aggressive tactics. The strategic role of each product becomes muddled when a line is oversegmented. Also, a company that extends its line risks undermining brand loyalty. Some companies, such as Procter & Gamble, Chrysler, and a leading U.S. snack foods company, have discovered that a carefully focused and well-managed line can increase profits and sales volume. John A. Quelch and David Kenny describe how marketing managers can sharpen their product-line strategies by improving cost accounting, allocating resources to popular products, researching consumer behavior, coordinating marketing efforts, working with channel partners, and fostering a climate in which product-line deletions are not only accepted but also encouraged.
With one-quarter of the world's population, and consumer spending increasing by as much as 10% annually, China offers an opportunity that marketers of branded goods can't ignore. Foreign companies seeking to win a piece of this growing market must overcome nagging uncertainties about the country's stability. They must also understand guo qing ("Chinese characteristics" or "the special situation in China") in order to deliver a product with the value, quality, and convenience that will appeal to Chinese consumers. Given the fragmentation of most Chinese consumer markets, Western marketers should concentrate on 3 to 5 key cities and then build sales, distribution, and manufacturing capabilities over a wider area. Multinationals already operating in China should try to cover 15 to 20 key cities by the end of this century. The challenge for both new entrants and seasoned marketers is to continue adapting products and marketing practices to guo qing.
In "Making Competition in Health Care Work" (July-August 1994), Elizabeth Olmstead Teisberg, Michael E. Porter, and Gregory B. Brown ask a question that has been absent from the national debate on health care reform: How can the United States achieve sustained cost reductions while at the same time maintaining quality of care? The authors argue that innovation driven by rigorous competition is the key to successful reform. A lasting cure for health care in the United States should include four basic elements: Corrected incentives to spur productive competition, universal insurance to secure economic efficiency, relevant information to ensure meaningful choice, and innovation to guarantee dynamic improvement. In this issue's Perspectives section, eleven experts examine the current state of the health care system and offer their views on the shape that reform should take.
Explores Olympus Optical's strategic response to major losses in its camera business. Key to Olympus's recovery were its extensive product planning process, a quality improvement program, and an aggressive cost-reduction program. In particular, the case details Olympus's target costing system, which enabled the firm to design high-quality products at low cost.
The merger of two computer software firms with very rapidly growing non-overlapping products makes great strategic sense, but presents difficult valuation and accounting problems. How can a firm pay $225 million to acquire another firm with negligible current earnings, and which promises to produce an immediate $150 MM one-time charge to earnings which will be followed over a five-year period by $65 million of amortization of intangible assets?
Gives a conceptual understanding of derivative products, their applications, and valuation. After a brief treatment of exchange-traded derivatives, explores over-the-counter (OTC) derivatives, emphasizing the market, credit, legal, operational, and other risks associated with these instruments.
Illustrates how Japanese firms use profit pressures to increase efficiency. In particular, explores how pseudo profit centers create pressure on workers to increase revenues and reduce costs, and the use of semiautonomous teams in a traditional Japanese workforce.
Documents how Higashimaru's plant manager converted a reluctant workforce into one that was open to change. Illustrates "human reengineering" and shows how the plant manager prepared workers for a factory modernization program.